The Carbon Limits and Energy for America's Renewal Act is a Senate climate bill S. 2877 introduced by Sen. Maria Cantwell (D-WA) and Sen. Susan Collins (R-ME) on December 11, 2009, which embodies a “cap-and-refund” approach to addressing climate change. The Act would create a nationwide limit on greenhouse gases by capping total emissions and requiring major polluters to buy “allowances” for each ton of greenhouse pollution produced: 75% of the revenue generated from the allowances would go to American households, and the remaining 25% of revenue is reserved for reducing greenhouse gas emissions, investments in renewable energy technology, climate adaptation, and other purposes.[1]

According to Sen. Cantwell: "A growing number of researchers and consumer groups have been examining the relative benefits of a greenhouse gas reduction policy that focuses on safeguarding and empowering consumers. A properly structured climate policy will put cash in consumers’ pockets and provide the necessary capital to make America’s homes and communities more efficient and less polluting."[2]

Carbon Caps

The bill would require the President to reduce greenhouse gas (GHG) emissions relative to 2005 levels by 20% by 2020, 30% by 2025, 42% by 2030, and 83% by 2050, through a gradually declining cap. The cap works by limiting the amount of fossil fuel carbon that producers and importers of coal, natural gas, and oil can sell into the U.S. economy, generating revenue from the carbon permits bought by producers and importers of coal, natural gas, and oil. (In other words, a power plant that burns coal does not buy carbon permits; it is paid by the mining company that mined the coal.) The bill's authors argue that the CLEAR Act’s “upstream” point of regulation means that only 2,000 to 3,000 fossil fuel producers and importers will face any new compliance obligations, greatly reducing any regulatory bureaucracy.[4]

Carbon permit prices will be determined by the bidding process among fossil fuel companies participating in monthly auctions. Only entities with a compliance obligation are eligible to participate in auctions—no Wall street traders or financial speculators are allowed in. To minimize price volatility, a price collar governs carbon permit prices.[4]

The Cantwell-Collins bill does not allow for carbon offsets, so that they are not used in place of domestic reductions in fossil fuel consumption, a strong criticism of the Kerry-Boxer bill, S.1733, and the House-passed Waxman-Markey bill, H.R. 2454.[1]

Cap and Dividend

75% of auction revenues are given back to consumers directly each month on an equal per capita basis to offset energy cost increases, known as cap and dividend and bypassing a cap and trade market. Average annual refunds for a family of four are estimated to be approximately $1000. The dividend will consumers cover potential ncreases in the price of fosisl fuels, and the bill's authors estimate that 80% of the American public will incur no net costs, and the lowest income population will receive net positive benefits. The remaining 20% percent – the highest income earners—will see less than a 0.3% decrease in income.[4]